Saudis seen by Woodmac pricing oil to protect Asia market share

SERENE CHEONG and ANTHONY DIPAOLA

EDINBURGH, United Kingdom (Bloomberg) -- Saudi Arabia is seeking to protect its share of Asia’s oil market by keeping crude prices competitive with those of other suppliers, according to energy consultants Wood Mackenzie Ltd.

“Asia now has more options to source crude oil supply,” Sushant Gupta, Wood Mackenzie’s head of Asia downstream research, said in an emailed statement Monday. “Saudi Arabia had to cut its price in Asia to ensure its crude oil remained attractive to the region’s refiners.”

Saudi Arabia’s market share in Asia will decline by 2020 if the world’s biggest oil exporter fails to increase exports to the region, according to Wood Mackenzie. Asia’s oil imports may grow by 135 million metric tons by the end of the decade, and Saudi Arabia’s 23% share of the market will erode to 21% by 2020 if it can’t increase shipments, the consultants said.

Rising production in the U.S. and Russia coupled with OPEC’s decision not to cut output has contributed to a 41% drop in the price of benchmark Brent crude over the past six months. The Nov. 27 decision by the Organization of Petroleum Exporting Countries and producers’ price cuts fed speculation that Saudi Arabia and other Persian Gulf suppliers are seeking to defend their market share.

Iraq, U.A.E.

Asia accounted for about 65% of Saudi crude exports last year, compared with 60% in 2006, the Edinburgh-based consultants said. Iraq has emerged as the largest competitor to Saudi crude, according to the statement.

Iraq’s exports to Asia rose by 30 million metric tons from 2010 to 2014, compared with a Saudi increase of 12 million tons, Wood Mackenzie said. Russia and the United Arab Emirates also boosted sales to Asia by more than Saudi Arabia, while Colombia, Venezuela and West African producers are making inroads, according to the consultants.

Saudi Arabia’s Arab Light grade typically sold at a premium to the average of regional benchmarks Oman and Dubai crude until September 2014, Gupta said. The grade sold at a discount since October, data compiled by Bloomberg show.

State-run Saudi Arabian Oil Co., known as Saudi Aramco, cut its discount on March sales of Arab Light to Asia to $2.30/bbl, the widest since at least 14 years ago when Bloomberg began compiling the data. Iraq, Kuwait and Iran joined Saudi Arabia in cutting March prices.

“Asian refiners are set to benefit from this competition,” he said.